- Distribution Network
- Generation and Wholesale Market
- Supply and Retail Market
- Transmission Network
Thank you – it’s great to be back at Energy UK and thank you to Emma to for inviting me.
This is the third year I’ve been here as CEO of Ofgem in front of all of you. And actually I just want to start by looking out across the world at what is happening elsewhere.
Our thoughts go out to all those affected by the tragic events in the Middle East – including those worried about their friends and family.
Ofgem is a diverse organisation and the sector increasingly so.
So just as we are doing with those affected by the Russia/ Ukraine war, we will extend support to those affected by what has happened in recent weeks.
Equally, these global events have an impact on our energy system at home.
Just as in the past three years, through covid and through the different stages of the gas crisis, the importance of this sector has never been clearer.
And as ever, our customers continue to face greater risks than they ever have in our recent history.
Therefore, we need to continue to step up as a sector to ensure we’ve done everything we can to help consumers this winter and indeed in the winters to come.
The industry and the regulator cannot solve these problems alone, but there is plenty that we can and should do.
For me, as you have heard clearly from others, that’s principally about two things.
First, protecting customers, especially this winter.
And second, building out a greener, more flexible and more secure energy system at pace, to diversify risk, attract investment, and support our climate change goals.
The energy crisis is not over
So let me start with protecting customers.
Every two weeks or so, I phone up an energy customer to hear their experience of the sector.
And again and again I hear the same thing: that they are very worried about their ability to keep themselves and their families warm in the cold months ahead.
Even with the schemes available to those who need it, and not forgetting the billions of pounds of support from government last year and the help towards bills last year, 4 in 10 consumers tell us they are struggling to pay their bills.
Bills remain around twice what they were before the gas crisis.
With recent global events putting ever increasing pressure on gas prices, it is likely that bills will rise further this winter.
At the same time, millions of households are continuing to feel the impacts of the rising cost of living across the board right now, from housing costs to food to fuel costs.
Support for vulnerable customers
The scale of the challenge faced by vulnerable customers was made stark to me recently during a visit to a Citizen’s Advice centre and food bank in Wales.
The sector has stepped up to provide additional support this winter – including last week’s commitment by suppliers to do more to help struggling and in-arrears customers…
… and the new ‘speak, seek, save’ campaign to ensure people know what to do if they are in debt. I absolutely and strongly welcome that.
We also see lots of fantastic practice across the sector, with many positive stories from customers where we have got things right - I have personally sat with advisors who have done everything they can to help customers manage their bills.
However, frankly the feeling of those people on the frontline is that levels of service for vulnerable customers are not yet where they need to be.
We have also seen recent cases of firms having to make multi-million-pound payments for poor customer service, such as unacceptably long call waiting times and call drop-off rates.
Since then, there has been some improvement across the industry – but there is more to do.
In short, we need to raise our standards, and the sector needs to do better than it did last year.
Best practice needs to be spread far further to ensure all of those who struggle are treated reasonably, fairly, and compassionately by their supplier, or indeed their network company.
So today Ofgem has launched a new consumer standards framework to make it easier for consumers to contact their supplier, support customers struggling with their bills, and enable suppliers to provide good service.
This means suppliers must be easier to get in touch with, at times and with contact methods that meet their consumers’ needs, regardless of vulnerability.
If a consumer is struggling, the supplier must be proactive and step up at the earliest opportunity to make sure they are getting the support that they need, and work out how that customer can make repayments at a rate they can afford – including considering a temporary debt repayment holiday if that is appropriate.
And companies will need to publish their Citizens’ Advice rating for their customer service, so the public can see what quality of customer service a company provides.
These changes are aimed at ensuring that the best practice we already see in many parts of the sector become the norm.
We are also introducing new measures to provide additional assistance to keep consumers warm, switched on, and on top of their bills this winter.
This includes tripling the funding to support struggling customers, helping make sure there are more ‘warm hubs’ during cold weather, and trebling the amount customers can claim for power cuts during storms.
This will complement the work of our Energy Aware campaign, aimed at ensuring vulnerable customers are aware of the support available to them, and have easy access to information that can help them save energy.
We are also working with the sector today on how they handle debt, to ensure we do not see a repeat of the practices we saw last year, including the new set of conditions for pre-payment meters.
Principles-based regulation is fundamental to retail regulation. But it only work when companies live up to those principles.
So, to all companies – retailers in particular, my ask is simple – do all you can to make sure customers, particularly the most vulnerable, are protected this Winter.
I also know many are concerned about standing charges. And we would like to see more suppliers offering customers the choice of tariffs without these.
However, while analysis has found that to simply abolish standing charges, and moving all the costs over to the unit cost of energy, would reduce bills for some households, but it could also mean a large number of low income households being worse off, including for example those with disabilities.
So clearly, we need to think about this carefully. And in the coming weeks we will be launching a call for input into standing charges, asking everyone in this room, consumer groups, charities, suppliers, and customer representatives for feedback on what they see, and the economics behind this. We welcome that engagement and will work with you to find the right balance for customers.
Price cap reform
Now the recent global events underline my view that we need to plan on the basis that wholesale markets may remain volatile, and prices high, for some time.
None of us can predict the future, but in my mind the best working assumption is the high and volatile prices that we see today.
For me, this raises three reflections:
First, the price cap has delivered for customers when the market was calm, and brought much needed stability at the start of the gas crisis.
However, if our wholesale markets continue to be volatile, we need to examine all options for price regulation…
… to make sure we have the right approach that protects customers, can adapt to fast changing markets, and leads us to a different form of retail market where energy is used far more flexibly by consumers.
Secondly, as I have said, our industry and indeed Ofgem need to do whatever they can to protect customers this Winter.
Now despite the many forms of additional support available, it is simply a fact that some families struggle to pay their bills. This will increase debt – already growing at a fast rate – which will add to the costs that all of us need to pay in the medium term.
These issues are for the government, sector and regulator to consider, and we will continue to work with government, as the Secretary of State said, as they keep these under review.
Third, it will be more important than ever to understand how vulnerable consumers use their energy, and enable the transition to a greener, more flexible energy system.
To do this, we expect suppliers to spare no effort to roll out smart meters to their customers, and we will continue to monitor their performance matches the ambition we have for the sector we have in front of us.
Now finally, I would just like to say I am delighted that Tim Jarvis has now joined Ofgem from the Treasury as Director General for Markets to look at all these issues, as well as wider work to ensure that we have a more competitive retail market.
So in terms of that first challenge of protecting customers, I want to stress we are still in a serious situation for vulnerable customers, and we need to continue to work together – government, sector and industry, to make sure they are protected.
Building the future energy market
That moves me on to what I see as the second crucial job for our sector: shaping that cleaner, more affordable, and secure energy system.
Now I’d just like to welcome Nick’s National Infrastructure Commission report. It’s the second time I’ve heard about it today, and it was definitely better the second time around!
It is clear our energy transition to get to net zero has never been more aligned with security and with cost than it is today.
And even if the path and timelines are hotly debated by our politicians, the destination remains widely accepted.
For me, that is underlined by the addition of a statutory net zero duty, a world first for an energy regulator – and as you can imagine with my background, something I strongly welcome.
New approach to regulation
So to fulfil that duty, we need consistency, clear signals, and direction, that provides certainty and assurance to investors that projects are viable, investible, and deliverable.
Our ambition is to redesign the way we regulate so it does not get in the way of project development.
So our ambition on the critical path towards the completion of a transmission project, network regulation is an enabler, not a blocker.
Some of the timelines for setting up energy infrastructure have simply been too slow – and I include the regulatory process in that.
So there is already a quiet revolution ongoing in the way that networks are approved and rolled out.
We are taking steps to plan out the system we need much more strategically.
We have already done this with a comprehensive plan for offshore wind, the Holistic Network Design, that has seen 26 new projects and £20 billion of investment approved in months not years, with more to follow, such as the spatial plan.
We will soon be extending this approach with a dedicated new organisation to function as the brain of the whole energy system, the Future System Operator. Regulated by Ofgem, this will launch shortly and it have our strong backing to deliver the system that’s needed.
Together with the proposals in the Winser Review to speed up network planning and approvals, which we are very supportive of, this will significantly pick up the pace of delivery.
Of course, this change in pace now needs to be matched by the system operator, the transmission companies, and the distribution companies, to connect up new sources of low carbon energy to customers more quickly.
To tackle waiting times for new transmission network connections, the system operator is working to reduce the number of projects in the queue which are not ready, and speed up connection times for those that are.
And we will be announcing a Connections Action Plan alongside the Department for Energy and Net Zero in the coming weeks.
We will also need to ensure that the system works effectively with this new infrastructure, using digital and storage technologies to enable flexibility.
The retail sector will need to respond to enable customers to use their energy in a very different way, offering products and services to consumers that enable them to easily take advantage of those opportunities. And we look forward to working with you and with the government in shaping that.
This means that the infrastructure challenge remains enormous, but with the aim of ultimately reducing the cost to customers.
So look – Ofgem recently has a new Chair and a refreshed board.
Having already spent time together, I know they are highly enthused and deeply committed to facing the two challenges I have outlined today. To protect customers from the very difficult challenges they face in the short term, and the massive transformation in our system we need to see in the long term.
My message to the industry today, particularly suppliers is this: if you look after your customers this winter, but equally in the long term…
And equally to investors: if you are reasonable in the returns you expect to make in the transition we have to build on…
… then I believe this is the biggest economic opportunity that this energy sector has been given in decades.
And I look forward to working with all of you together. Thank you.